Payroll & timekeeping records can SCREW you

Q: We recently discovered that several of our managers were not keeping accurate timekeeping records of work hours for non-exempt employees. Should we be concerned about these incomplete records?

A: Don’t worry, be happy….NOT! Having incomplete or incorrect pay and work hour records is definitely something to worry about.  Can you say “even going back three years??!!”

Look, we know what a pain in the butt it is to have to be super meticulous about every little minute that a non-exempt employee worked. And it’s challenging to make sure that all the records are double checked (at least) every time payroll is processed. We know, because we’ve had to do it for big big companies with hundreds of non-exempt employees and it’s never fun.

BUT, and this is a big one, bad payroll and timekeeping records can screw you because the devil is in the details.

Wage & Hour Claims Growing

Q: What is the worst thing that can happen if we don’t pay someone correctly?

A: Do you think it’s just a quick fix and a new paycheck? Well, if you’re lucky as hell it might be just that. But, whether it’s an overpayment (yep, no kidding) or an underpayment, you’re opening your company up to low employee morale and very expensive wage and hour claims.

One of the largest areas of oversight by the Department of Labor (DOL) is for state and federal wage and hour claims that come pouring in every day.  They come from disgruntled employees, former employees and whistleblowers. Bad payroll and timekeeping records can screw you quicker than you could say “what?!” So, this is something to take very seriously.

The federal DOL has even created a calendar app for employees to track their regular work hours, break times and any overtime hours.  Now, it’s easier for employees to keep track of it on their smartphones than it is for you, as the employer, sometimes.

Here are some examples of recent DOL claim settlements that show how bad payroll and timekeeping records can screw you and just how expensive it could be:

1. The owners of several New Jersey gas stations agreed to pay $3 million in overtime, back pay, and liquidated damages to over 400 nonexempt employees in March 2013. The employer was cited for, among other things, requiring employees to work “off the books” and failing to maintain adequate records of work hours
2. A Los Angeles firm agreed to pay $260,000 in back pay and liquidated damages to 57 nonexempt employees for willful violations of the Fair Labor Standards Act’s (FLSA) overtime and recordkeeping provisions in February 2013
3. In November 2011, the DOL completed 46 investigations of pizza and pasta establishments as part of an “ongoing enforcement initiative” in Long Island, New York. The agency recovered $2,341,507 in back wages for 578 employees. In addition, the agency assessed $202,315 in civil money penalties against employers for willful and repeated FLSA violations.  These violations included minimum wage, overtime, and recordkeeping errors.
4. In 2007, the DOL settled a case against a Las Vegas plastering and masonry company for over $1 million in damages involving more than 1,000 employees. In addition to finding overtime violations, the DOL also determined that the employer had failed to keep proper records over a two-year period.

Ok, Ok, I know, your company doesn’t have 400 non-exempt employees or even 57 non-exempt employees. The point is, even a fraction of those penalties could be enough to cripple many smaller companies or even put them out of business.

You Need a CheckList of Major Recordkeeping Requirements

Q: Can you give me a quick checklist on the most important things to do to get my payroll recordkeeping right?

A: Sure, here are the major recordkeeping requirements of the Fair Labor Standards Act (FLSA) that you should monitor:

Make sure you retain payroll records for at least three (3) years from the last date of entry and make sure they contain the following info:

• Each employee’s name, as used for Social Security
• The employee’s identification number or symbol, if used in place of the name on any payroll record
• Home address and zip code
• Date of birth for employees under the age of 19
• Gender and occupation
• Time and day of the week when the employee’s workweek begins
• Regular rate of pay for any week when overtime is worked
• Hours worked each workday and total hours worked each workweek
• Total daily or weekly straight-time earnings
• The total overtime compensation for the workweek (this requirement applies only to nonexempt employees)
• Total additions to or deductions from wages for each pay period
• All wages for each pay period, date of payment, and pay period covered by the payment
• Sales and purchase records for employees who are subject to minimum wage requirements.

Keep supplementary basic records for all employees for at least two years. These records can be used to determine overtime and other payments and include:

• Wage rate tables
• Work time schedules, time cards or sheets
• Records of amount of work produced by each employee
• Order, shipping, and billing records

The Burden of Proof

Q: So, if I don’t have these records, how can I lose the case when there’s no proof one way or another?

A: Oh, if only it were so simple! Don’t be fooled into that thinking. If an employer fails to keep proper records of work hours, the DOL will rely on employee testimony to establish the number of hours worked. Bad payroll and timekeeping records can screw you because then it’s your word against the employee’s word and that’s never a good thing.

For example, in 2008 , the courts ruled in favor of a Family Dollar Store employee who brought a claim for overtime wages. The court found that the employee presented evidence that the employer’s records were not in compliance with the FLSA.  Therefore, the employer’s records could not be trusted. The court relied on the employee’s testimony regarding the store’s operating hours and the holiday schedule.  The courts accepted the testimony as a “just and reasonable inference” of the uncompensated hours owed.

NOTE: It is critical that you thoroughly evaluate how you are keeping records. Are you writing work schedules on a board or piece of paper? Or are you tracking hours worked on a spreadsheet that is seconds away from being lost in a computer crash? Then you need to consider using other alternatives such as an HRIS (Human Resources Information System) that houses and processes data in the cloud.

As if all this weren’t enough to make you queasy, here are two more examples of why bad payroll and timekeeping records can screw you big time:

1. Even if just one employee is complaining about a single pay violation, you need to take action.  You must remember that the DOL can and will, on a regular basis, investigate ALL of your records.  Their goal is to determine if there are other potential violations. If you are targeted as part of one of the DOL’s “ongoing enforcement initiatives,” every single one of your pay records will be up for grabs as part of their investigation. And as we mentioned in the very beginning of this article, you might have to produce payroll and time records going back two or three years.
2. Once your company is found to be in violation of the FLSA, your company could face several financial burdens.  These can include back wage payments, civil monetary penalties and even worse, personal liability for decision-makers.  The penalties for decision-makers includes fines and possible imprisonment for management employees or owners.

We go into great detail on recordkeeping and other compliance issues in our HR Course, HR 101: Making Compliance Easy.  Don’t be caught in an audit or a wage & hour claim without learning your responsibilities.

Now that you know that bad payroll and timekeeping records can screw you big, what’s the one thing you need to do in your business to avoid these pitfalls? Share your thoughts on our Facebook page so that others can see they’re not alone.